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Media --In an agreement that is likely to be repeated across the banking
industry in the US, embattled financial institute Bank of America, has paid more than $2.5bn to settle a dispute over
claims that it sold faulty mortgages to government-backed lenders. Bank of
America said it paid $1.28bn to Freddie Mac and $1.34bn
to Fannie Mae to resolve claims its Countrywide division sold products to
the two giant mortgage lenders – whose loans are guaranteed by the US
government – that may not have met underwriting standards.

Bank of America and its rivals have faced pressure from Freddie and Fannie and
also private investors to either buy back mortgages or provide compensation
for those loans that soured dramatically once US house prices started
falling in late 2006. Most of the claims against Bank of America stem from
mortgages sold by Countrywide Financial, a lender that Bank of America
bought in a fire sale in summer 2008.

Brian Moynihan, Bank of America's chief executive, said yesterday that the
agreements "resolve substantial legacy issues in the best interest of
our shareholders". Shares in the bank, which is based in Charlotte,
North Carolina, climbed almost 5pc to $13.83 in early trading on Wall Street.

The bank said that the settlement, which covers more than $127bn of mortgages
sold by Countrywide, resolves all claims made by Freddie and Fannie.
However, Bank of America still faces billions of dollars in claims from
private investors who allege they were sold faulty mortgages. Mr Moynihan
said in October the bank would fight those investors whose attitude was "I
bought a Chevy Vega but I want it to be a Mercedes".
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